Churchill Downs, Inc. v. Commissioner
United States Court of Appeals for the Sixth Circuit
307 F.3d 423 (6th Cir. 2002)
Churchill Downs, Inc. (CDI) (plaintiff) operated racetracks and paid for dignitaries and journalists to attend private pre-race receptions, parties, and dinners before events like the Kentucky Derby, hoping the guests would help promote the races; the events were closed to the public and no tickets were sold there. CDI deducted the full cost as an ordinary business expense, likening the events to a fashion show that promotes clothing sales, but the Commissioner of Internal Revenue (defendant) ruled the events were entertainment subject to the tax code's 50% deduction cap. The Tax Court agreed with the Commissioner, and CDI appealed.
Whether, for federal tax purposes, business expenses for entertainment activities are limited to 50 percent of the cost if the activity is not instrumental to the taxpayer's business.